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1 September 2020 last updated

Providers raise annuity rates as gilt yields bounce 22 basis points

Providers raise annuity rates
 
Standard rates:  
annuity rates change 0.88%
Enhanced rates:  
annuity rates change 1.23%
Gilt yields:  
annuity rates change 22 basis point
 
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15-year gilt yields chart - Based on figures for August 2020
Latest gilt yield chart

August 2020 Review

The 15-year gilt yields have increased 22 basis points to 0.56% which is a similar level at the start of the year after reaching all time lows during the Coronavirus lockdown period.

Providers have increased pension annuities with standard rates higher by 1.47% and impaired annuity rates up by 2.27% over the last two months.

Yields have been higher with a large supply of government debt from developed countries and large sell-off of bonds and gilts at the end of August.

The Federal Reserve have also stated it will allow inflation to exceed 2% before applying monetary policy which could erode returns on long dated debt making these less attractive.

Find related news here:
Retirement annuities rise up to 2.4pc as investors sell-off bonds and gilts
Annuity rates risk falling as rise in Covid-19 cases slows recovery
Annuities could rise as equity markets and gilt yields rebound

The 15-year gilt yields rise by 22 basis points to 0.56% during August which is a welcome recovery from the all time low levels although yields remain historically low.

Providers of standard annuities increased annuity rates by an average of 0.88% for this month and we would expect rates to rise by 1.32% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of 1.23% and rates and we would expect rates to rise by 0.97% in the short term if yields do not fall.

Fig 1 below shows the annuity rates changes for the whole market and the proportion that have either increased, decreased or or did not change. It also shows the range of the changes of the annuity rates over the last month:

Annuity Rates Changes
Increase No change Decrease
annuity rates decrease   90%
annuity rates no change   8%
annuity rates decrease   2%
Increases of:
max 2.4%

 

Decreases of:
max -0.2%

  Fig 1: Annuity rate changes for the whole market


For the month 90% of annuity rates increased by up to 2.4% with 8% remaining unchanged and 2% decreasing by as much as to -0.2%.

What happened to standard rates

Below shows a fund of £100,000 with the change in standard annuity rates for single and joint pensioners from age 55 to 75 with different annuity options such as level or escalating over 1 month compared to gilt yields:

Standard annuity 1 month changes
Fig 2: Change in standard rates last month compared to gilt yields


What happened to enhanced rates

Lifestyle smoker and enhanced annuities have decreased significantly across the board for all types of annuities and ages.

Enhanced annuity 1 month changes
Fig 3: Change in enhanced rates last month compared to gilt yields


For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 0.34% to 0.56% or 22 basis point. Table 1 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:


15-Year Gilt Yields - August 2020
Day Rate (%) Change (bp*)
3 0.33 -1
4 0.30 -3
5 0.36 +6
6 0.32 -3
7 0.37 +4
10 0.36 -1
11 0.42 +6
12 0.46 +4
13 0.48 +2
14 0.50 +2
17 0.47 -3
18 0.47 0
19 0.49 +2
20 0.48 -1
21 0.46 -2
24 0.46 0
25 0.52 +6
26 0.56 +4
27 0.60 +4
28 0.56 -4
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Gilt yields lower with concern of global economy as Covid-19 cases rise
Equity markets rally on hopes for vaccine as yields lack direction
Annuity rates up despite lower yields with global economic concerns
Annuity Rates
  Age Single Joint  
  55 £3,640 £3,291  
  60 £4,102 £3,823  
  65 £4,825 £4,358  
  70 £5,675 £5,156  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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